I’m sure you’ve heard about the trouble at the two government sponsored mortgage giants and the government’s plan to help.
While there are many implications of recent events for individuals I want to make one point: if you have faith in the government’s plan to help out Fannie and Freddie you really have faith in yourself.
Why?
The full faith and credit of the United States government really means the full faith and credit of American individuals and corporations.
Why?
Because government is not, in an economic sense, a productive enterprise.
Governments do not generate revenue by providing goods and services in a free market but tax those who do.
So what?
Well, if you have faith in the credit of the US government what you really have faith in is yourself: at the end of the day the credit of any government is ultimately a function of the productive powers of its people and its companies (i.e. the tax base).
No tax base, no credit for the government.
American workers and companies have been very productive over the last 100 years and created a large, deep, and reliable tax base.
As a result, people have a lot of confidence in the credit of the US government (and they should).
But just remember, what should give you comfort is not the fact that the government is stepping in to rescue Fannie and Freddie but that they can, and do so on credit no less, because of the strength of the productive powers of American individuals and companies and the existence of a political system which still does a good job of promoting and rewarding innovation and attracting the best talent from around the world.
I’m not saying we should stop worrying about how much debt we’re running up as a nation (we’re going to have pay it all back).
But remember, what really makes the credit of our government so strong is you.
